Ironing-out the tension: The China-Africa relationship and its consequences for Australia

Simandou iron ore mine in Guinea: Bloomberg

In the wake of increasing tensions in Sino-Australian geopolitics, China’s pivot to Africa may cost Australia its spot as China’s number one iron ore supplier. While Western analysts decry Chinese investment in Africa as ‘debt-trap diplomacy’, African economies are revelling in the development – and the opportunity to compete on a global stage.

The significance of the Sino-African relationship cannot be understated. World powers are once again engaging in a “scramble for Africa”, and China appears to be winning the race. Africa exported USD $105.9 billion of goods to China in 2021, up 43.7 per cent year on year – easily earning China the title of Africa’s largest trading partner. With resource-rich South Africa, Angola, and the Democratic Republic of Congo (DRC) accounting for 62 per cent of all African exports to China, it is clear that China sees value in the largely untapped mineral markets on the continent.

All that glitters, however, is not gold. Chinese investment in Africa is commonly painted by analysts as a form of “debt-trap diplomacy”. This occurs where African states are offered easy loans in exchange for the granting of mining licenses, exclusive rights to mineral deposits, and other non-conventional ‘repayments’ that bypass national governments.

A notable example of this alleged debt-trap activity is a $20 billion bauxite deal brokered between Guinea and China in 2017, wherein China agreed to invest heavily in Guinean infrastructure and roadworks in exchange for the granting of mining licenses and rights to Chinese companies. The Natural Resource Governance Institute cautions against deals such as these, which may appeal to African leaders’ “short-term political ambitions” but risk significant debt and collateral damage.

Others, such as Kenyan scholar Cavince Adhere, dismiss the allegations of debt-trapping as a ‘convenient political narrative’ created by the West to undermine the Sino-African relationship. Reports by UK group Debt Justice reveal that Africa is three times more indebted to Western banks, asset managers, and oil traders than they are to Chinese lenders, suggesting the risks are perhaps not as high as they seem.

In any event, African states are certainly not about to bite the hand that feeds them. With Chinese trade creating an average of 18,562 African jobs per year (and increasing) as well as supporting the building of countless railways, highways, mega ports, and dams, African leaders are understandably attracted. Almost 40 African countries have signed preliminary agreements to join China’s Belt and Road Initiative, which promises to boost import and export supply chains within the continent.

China’s pivot to Africa as a means of diversifying import sources could spell bad news for Australian exporters, who would be placed in direct competition with African exporters for the massive Chinese market. Critically, China is currently dependent on Australia for 65% of its iron ore – a vulnerability that China seeks to arm itself against in light of increasing bilateral tensions. With the untapped Simandou iron ore reserve in Guinea under development by Chinese firm SMB-Winning and set to deliver by 2025, the clock is ticking for Australian exporters.

Such tensions are ever-increasing, and are felt across both the Australian and African continents. On 2 August 2022, a visit by United States politician Nancy Pelosi to Taiwan directly challenged the One China policy, resulting in Chinese military exercises over the island. The Australian government called for ‘restraint and de-escalation’, while in Africa most countries stand firmly with Beijing. Aware of the shifting geopolitical environment and the potential threat posed by the Quad alliance (involving the United States, Australia, Japan, and India), China is looking to African markets as something of an insurance policy.

For Australian traders, all is not lost just yet. With a new global focus on reinvigorating the African mining industry, comes a new opportunity for all things METS – exploration technology, data management tools, automation and system controls, and sustainability innovation. Resource-rich countries like Nigeria are now identifying mining as their priority sector for development, meaning Australian businesses have a unique opportunity to reach the ground floor of what could eventually become some of the largest mining operations in the world. In light of increasing tensions in Sino-Australian relations, this may be just the ‘substantial recalculation’ that Australia needs.